Coinbase (COIN) stock price has seen one of the biggest declines in the stock market. The stock fell to a record low of $32.51, well below the November 2021 high of $369.
The price drop in 2022 was around 87% – more than most cryptocurrencies, including Bitcoin (BTC), have lost. In this article, I will present a risk-reward analysis for the stock in early 2023.
Coinbase: a mountain of risk
Coinbase stock faces significant risks as we approach 2023. Arguably the most significant of these, if cryptocurrency prices continue to fall throughout the year, it will have very bad consequences for COIN. The worse the situation in the crypto market, the less people there are trading crypto – and the company’s revenue decreases accordingly. This is why the stock hit its all-time high as Bitcoin was also trading at an all-time high.
Additionally, Coinbase faces significant regulatory risks. The collapse of FTX, Voyager Digital and Alameda will likely prompt the Securities and Exchange Commission (SEC) and other regulators to come up with tougher regulations to prevent further such issues. It would also mean that the biggest crypto exchanges like Coinbase and Binance would come under greater scrutiny.
In 2023, we will likely learn the verdict in the ongoing lawsuit between the SEC and Ripple Labs. If the judges rule in favor of Ripple, it could mean some relief for Coinbase and others in the industry. On the other hand, if they lose, the SEC could use the win to crack down on cryptocurrencies. Such a move could force Coinbase to delist most listed cryptocurrencies, which would then be classified as securities.
Coinbase also faces other risks. On the one hand, analysts expect the company’s fourth-quarter earnings to be disappointing due to the FTX drama. The exchange’s subscription activity will also slow as investor anxiety about cryptocurrencies increases. Other risks include a global recession and high interest rates.
Coinbase Stock Offers Opportunities
Coinbase’s stock price is likely to react to multiple potential gains. The main one will be a return of cryptocurrencies. When that happens, the stock price will go up. Additionally, BTC has seen similar declines in the past.
Second, the stock market could benefit from the collapse of companies like FTX and Celsius, as their customers can now switch to Coinbase. And unlike crypto exchanges like Binance, Coinbase is a regulated, publicly traded company. As such, it is legally required to provide investors with accurate information.
Additionally, Coinbase has a strong balance sheet with over $6 billion in cash. Therefore, the company will be able to weather the current crypto winter well.